Trend Following

Trend Following

In the complex world of financial markets, the ability to follow trends effectively can mean the difference between success and failure. Michael W. Covel’s book, “Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets,” offers readers valuable insights into a trading strategy that can thrive in a variety of market conditions. In this article, we’ll explore the key concepts from the book and delve into how trend following can lead to profitable outcomes.

Trend Following: A Lucrative Approach to Trading

Understanding the Essence of Trend Following

Trend following is more than just a trading strategy; it’s a mindset that revolves around identifying and capitalizing on market trends. Whether the market is bullish, bearish, or experiencing unexpected black swan events, trend followers aim to ride the waves of price movements and profit from emerging trends.

Michael W. Covel’s Expertise

As a well-known author and trend following expert, Michael W. Covel brings a wealth of knowledge to the table. His book is a culmination of extensive research and interviews with successful trend followers, highlighting the effectiveness of this strategy across diverse market conditions.

Navigating Bull, Bear, and Black Swan Markets

One of the book’s standout features is its applicability in various market scenarios. Whether the market is experiencing a strong uptrend, a downtrend, or sudden unprecedented events, trend followers are equipped with strategies to navigate and adapt, ensuring consistent growth.

Mastering the Principles of Trend Following

Mechanical Rules for Objective Trading

Covel emphasizes the importance of having clear, mechanical rules for trading. These rules remove emotions from the equation and guide traders to make decisions based on predefined criteria rather than gut feelings. This disciplined approach is fundamental to trend following success.

Letting Profits Run: The Power of Pyramiding

The concept of pyramiding involves adding to winning positions as the trend progresses. This technique allows traders to maximize profits during sustained trends. Covel discusses how pyramiding can significantly enhance returns, provided it’s executed with proper risk management.

Risk Management: Preserving Capital

Preserving capital is a central tenet of trend following. Covel highlights the significance of position sizing, setting stop-loss orders, and managing risk to ensure that a series of losses doesn’t wipe out an entire trading account.

Psychological Resilience: A Trader’s Mindset

Trend following demands psychological resilience. Covel explores the mental aspects of trading, emphasizing the importance of discipline, patience, and the ability to accept losses as an inherent part of the trading journey.

Frequently Asked Questions

Q: Is trend following suitable for all types of traders?

A: Yes, trend following can be adapted to suit traders of different styles, whether they’re day traders or long-term investors.

Q: Can trend following really work in black swan events?

A: While black swan events are unpredictable, trend following can help traders manage risk and potentially capitalize on emerging trends after the event.

Q: Is Michael W. Covel’s book suitable for beginners?

A: Absolutely. The book explains trend following concepts in a comprehensive manner, making it accessible to traders at all levels.

Q: How can I implement trend following strategies?

A: Covel’s book provides step-by-step guidance and real-world examples to help readers understand and implement trend following techniques.

Q: Can trend following be automated?

A: Yes, many trend following strategies can be automated using trading algorithms, allowing for systematic execution.

Q: Are the strategies discussed in the book still relevant today?

A: Yes, the principles of trend following remain timeless, even in today’s rapidly changing markets.


“Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets” by Michael W. Covel is a must-read for traders seeking a systematic and disciplined approach to navigating the complexities of the financial markets. Through a blend of expert insights, real-world examples, and practical strategies, the book equips readers with the tools they need to identify trends, manage risk, and ultimately, achieve success in various market conditions.